AdvisorShares Weekly Market Review – Week Ending 2/27/2015

Highlights of the Prior Week

Macro

Fed Chair Janet Yellen gave testimony on Capitol Hill last week that offered no surprises or news and probably to Chair Yellen’s relief did not move equities at all and only moved bonds slightly. Barron’s posited that equity markets no longer care about whether the Fed raises rates and while that may be a stretch it is certain that a rate hike will not come from left field regardless of whether equity prices manifest any reaction. If your starting point is the taper tantrum of 2013, then the Fed has been preparing markets for a rate hike for 21 months…and counting.

While the Fed is still guiding to mid 2015-ish for raising rates, there are plenty of pundits who are skeptical due to GDP growth that has generally lagged growth in previous recoveries and the economy’s inability to sustain the 2% inflation target. The fourth quarter GDP was revised last week down to 2.2% supports the idea of the Fed delaying action.

As mentioned, domestic equity markets were flat on the week. The Dow Jones Industrial Average was down four basis points, the S&P 500 declined by 27 basis points while the NASDAQ added 15 basis points and the Russell 2000 gained 13 basis points. Year to date the NASDAQ has been the clear winner with a 4.79% gain followed by a 2.37% lift for the Russell 2000, 2.20% added on to the S&P 500 and the Dow brought up the rear with a 1.74% decline.

The major foreign equity markets were all higher last week. The FTSE 100 was up 46 basis points and is up 5.8% year to date. The CAC 40 was up 2.23% on the week and has gained 15.9% so far in 2015 while the German Dax was up 3.18% for the week and 16.28% for the year.

Asian markets have also been strong as the Nikkei 225 was up 2.52% last week and has rallied 7.72% year to date. The Hang Seng added 60 basis points last week and 5.63% so far in 2015. Shanghai was particularly strong last week with a 3.37% lift which now leaves it positive for the year having now added 2.43%. Finally the ASX 200 was up 80 basis points and so far this year it is up an impressive 9.07%.

Owners of ETFs targeting most of these countries have likely not enjoyed similar gains as the indexes year to date due the strength of the US dollar. So far this year the euro has lost 7% against the dollar, the British pound has lost 1%, the Australian dollar has shed 4.6% but the greenback is down 42 basis points against the Japanese yen.

The yield on the US Treasury Ten Year Note fell 13 basis points to yield 2.00%. Yields in Europe, aka the deflation zone also fell last week. The German bund yield fell to 0.33% while the German five year has a -0.09% yield. Five year sovereign debt in Finland, the Netherlands, Switzerland and Austria also carry negative yields. The French OAT fell to 0.60%, the Swiss ten year yield is still positive at 0.02%, Spain yields 1.26% and Italy has a yield of 1.33%. Portugal, which is viewed by some to be the worst off of the so called PIIGS yields 1.83%, 17 basis points less than the US ten year.

Gold was up 59 basis points for the week leaving it up slightly year to date. The action in the commodity market of course remains with crude oil. West Texas Intermediate Crude started the week with a 4% decline, it recovered that and then some by late Wednesday only to fall 6% into midday Thursday before drifting on Friday to close out the week with a 3.26% loss.

A new month of course means a new jobs report coming this Friday with expectations calling for 240,000 new jobs created and for the headline unemployment rate to tick down to 5.6%.

ETF News & Data

Last week was a busy one for new fund issuance with seven new funds hitting the market. The biggest news of course was Jeff Gundlach of Doubleline Capital dipping his toe into the ETF industry through State Street’s SPDR funds. We would also note another significant new fund from iShares that attempts to reconcile flaws in funds that track the Barclays Aggregate Index which of course has a lot of US Treasury exposure and takes interest rate risk by virtue of its effective duration.

Looking at flow data, funds tracking international equities, currency hedged or otherwise, generally had large inflows likely attributable to foreign equity results year to date. Funds tracking the Russell 2000 saw large outflows last week. Coincidentally Barron’s isolated what it believes is a flaw the Russell 2000’s methodology that makes it inferior to other small cap benchmarks based on returns. The issue has to do with the Russell’s annual rebalance versus other indexes, like the S&P 600 rebalancing more frequently.

Interesting Reads

It will soon be fire season in the west, in fact it has been a busy year already for starts in California. Wildfire Magazine asks When Do You Become A Firefighter as it follows one firefighter during his first “real” season on the line.

The crew worked 16 hour days to hold our division of the fire. We cut line, attempted a burnout that became a 40 acre slopover, and spent the rest of the day desperately trying to contain it. I sawed burning limbs out of green trees, and spent an exhilarating evening burning out a quarter mile swath off of the Pacific Crest Trail to stop the advance of the fire.

Sports

So here’s something you didn’t know about Manny Pacquiao; he is a player-coach on the Kia Carnival in the Philippine Basketball Association, that country’s professional basketball league. Although clearly not the same level of competition as the NBA, the Philippine league is a legitimate destination for players as a possible stepping stone to the NBA or a chance to keep playing for those whose NBA careers are over like Daniel Orton who played college ball at Kentucky, lasted several years in the NBA and who found himself playing this year for the Purefoods Star Hotshots.

Orton got into trouble after his team played Pacquiao’s team when he said of Pacquiau’s participation that it “…is a joke … Professional boxer? Yeah. Congressman? All right. But professional basketball player? Seriously? It’s a joke.”

The fallout from this was swift. Orton was fined and released from the team.

Weekly ETF Flows

For February 23, 2015 to February 27, 2015

S&P Sector Analysis

As for the sectors of the S&P 500, five outperformed the broad benchmark – Telecom, Energy, Financials, Materials and Discretionary. The remaining five – Industrials, Technology, Staples, Healthcare and Utilities – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 10.59% this week, with Telecom outperforming all, and Utilities coming in last.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers. AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.